Are French football teams at risk under Sapin II?

Since enactment of the French anti-corruption law Sapin II, the Agence Française Anti-Corruption and other French prosecutors have begun to more actively pursue companies for anti-corruption offenses. Will they eventually take a deeper look into the operations of Ligue 1 and the football (soccer) clubs that are part of it?

Despite French football’s successes, its domestic league continues to hold the reputation of being both economically and competitively inferior to its European counterparts. Nevertheless, Ligue 1 in the past two seasons reported record revenues, totaling €1.64 billion ($1.82 billion) in 2018, and sold its TV rights for €4.6 billion ($5.14 billion).

Ligue 1 has also wooed foreign investors, resulting in the purchase of several prominent clubs, including Paris Saint-Germain F.C. (PSG) which was purchased by the sovereign wealth fund Qatar Sports Investments. The money flowing into Ligue 1 brings with it the possibility of greater regulatory scrutiny. Indeed, several clubs and/or directors affiliated with French football have already been investigated for financial misdeeds.

PSG allegedly violated FIFA’s Financial Fair Play Regulations, a set of rules against “financial doping.” Swiss authorities have opened several corruption inquiries against PSG president Nasser Al-Khelaifi in connection with FIFA and the World Athletics championships. Authorities in Switzerland and Monaco are currently investigating Dmitry Rybolovlev, the owner of AS Monaco (which competes in Ligue 1), for corruption.

Beyond the investigations, Sapin II could lead to further regulatory obligations for select clubs. The anti-corruption law requires companies of a certain size to adopt and implement an anti-corruption compliance programs designed to prevent and detect corruption risks. Breach of the requirement can lead to sanctions on non-compliant companies and individuals. The Agence Française Anti-Corruption is responsible for enforcement of the requirements, which it does through proactive audits or “controls.”

Several Ligue 1 clubs could become subject to the compliance program requirements imposed by Sapin II. PSG, a Société Anonyme à conseil d’administration, has revenue totaling €541.7 million ($605 million) in 2018 and more than 800 employees, which surpasses the jurisdictional threshold established by Sapin II.

Other clubs may also cross the threshold in coming years, including Marseille, a Société Anonyme à directoire, which reported revenues near €100 million ($112 million) but lacked the requisite headcount. Teams could also potentially be implicated under their ownership structures, depending on the parent company’s headquarters, worldwide headcount, and revenue.

To the extent that certain clubs do meet the law’s applicability standards, they, or their respective ownership, should conduct risk mapping and due diligence that focuses on sponsorships, use of third parties such as player agents and suppliers, television rights, and public projects related to club facilities and stadiums, among others.

Internal controls are of particular importance when a club’s activities and management include connections to public officials or ownership by sovereign investment funds or other foreign entities.

Additionally, club management should cascade a strong tone at the top by providing the proper compliance training to relevant employees and establishing a code of conduct, internal controls, policies and accounting procedures, whistleblowing systems, and monitoring mechanisms.

By establishing strong compliance programs adapted to the potential risks in the football industry, French football clubs will find themselves tactically well-positioned for any challenge — a goal these teams should aim for both on and off the pitch.

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Ernesto J. Alvarado, pictured above, is an associate in the Washington, D.C. office of Hughes Hubbard & Reed as part of the Anti-Corruption and Internal Investigations practice group. He has conducted reviews of client operations in the oil & gas, defense, and aerospace industries, and has conducted due diligence on business partners and commercial consultants throughout the world. He can be contacted here.

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1 Comment

Damien Romestant

June 19, 2019 at 12:36 pm

Dear Ernesto, you raised a right question. It is also true that these clubs have different level of organisation, more or less structured. I would not be surprised that in the coming years we will have cases involving one team or another, although this exposure is still hypthetical for now. Let's also assume that the foreign investors, like Mc Court in Marseille, are importing a deeper culture of compliance. At least if they might be exposed to the US regulations. Best, D.

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